At this time, I would like to welcome everyone to this Brødrene A & O Q2 and H1 2025 Interim Report. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be on listen-only mode throughout the presentation, and afterwards, there will be a question and answer session. I'll now turn the call over to CEO Niels A. Johansen. You may now begin.
Good afternoon and welcome to our second quarter and first half 2025 webcast. Let us look at some of the highlights of the second quarter. Sales growth is well in line with expectations. The combined growth was almost DKK 200 million higher than Q2 of last year, with a reported growth of 15%. Organically, we saw a growth slightly higher than 7%. If we look at the organic growth per workday, it amounted to more than 9%. The comparison of sales was negatively impacted by the timing of Easter. Sales met our expectations. The B2B business delivered a solid quarter. The B2B activities confirmed the growth rates we observed during the first quarter of 2025. The pressure on margins is still fierce, but the B2B business managed to deliver gross margins of 0.3 percentage points higher than Q2 last year.
We see a high number of customers in our stores and are well positioned with renewal. The last EA store has been merged with AO. We are very satisfied that all the EA stores now include the EA assortment. When we acquired EA, they had seven stores. Since then, three EA stores have been closed and moved into nearby AO stores, and the remaining four EA stores now include our AO assortment. In total, the EA assortment has been introduced in all AO stores. AO Sweden posted a 41% growth in the first half of 2025. The original five AO stores in Southwest Sweden are showing organic growth. The three new stores in the Stockholm area are ahead of sales forecasts. Västerås is already showing positive earnings, and Uppsala is well underway.
Normally, our target is to reach break-even for a Greenfield establishment within the first year, and we plan to open in Örebro in January 2026. B2C delivered a strong quarter and saw organic growth for the seventh consecutive quarter. The 71% growth was heavily fueled by our acquisitions in 2024. Gross margins came in at 31%, more than 4% higher than last year. For the last 12 months, B2C activities crossed the DKK 1 billion mark. Integration of AO Workwear follows plans. AO Workwear has doubled its earnings in the first half of 2025 compared to the figures of the first half of 2024 before the acquisition. The integration is well underway. The AO B2B customers are beginning to order workwear from AO Workwear. Most potential is still lying ahead of us. Let us look at the management's observations. Competition is fierce.
Demand remains lower than the capacity of wholesale supply in Q2. This causes a somewhat one-sided customer focus on price, especially on project sales. During such time, we observe an increasing tendency from customers in negotiation even smaller orders, as normally done for larger projects. Over time, we expect a more balanced demand-supply situation. By then, we expect a less one-sided price focus and an increased customer focus towards other add-ons, such as how the customers are served best in the most convenient way. Lower basket sizes called for internal manpower. Basket sizes in the second quarter of 2025 remained low due to lower project sales and lower sales of the heat pumps and likes. The lower basket sizes result in more inventory picks per million sales and more logistic drops per million sales.
While we do enjoy the bustle, this puts a pressure and a challenge on timing our plans to optimize the cost of doing business ratio. We simply need more hands to serve the revenues. Consolidation of customers continues, and procurement associations are getting bigger. The bigger customers are requiring further negotiations on margins and terms in general. AO has a strong position with regards to serving the big customers but remains loyal to making work life easier for the smaller craftsmen, which are the core business of AO since we started in 1914. The market for heat pumps is still stagnant. We do not see a big movement in the sales of heat pumps. The sales of heat pumps are a relatively small proportion of AO sales, amounting to less than 5% of our sales. Increased customer risk.
A proportion of the customers have seen volatile cash flows due to fluctuations in business activity on pending projects. We see credit insurers cutting lines, which increases AO's own exposure. For now, we have not seen more losses, but we do foresee the risk of losses being slightly higher than last year. Geopolitical tensions and uncertainty. AO buys 83% of all goods in Europe and the rest in Asia. More than 99% of our sales are within Scandinavia. As we speak, we do not see any significant signs of geopolitical tension in our numbers, nor do we see significant backlogs from suppliers. However, we have noted a slight tendency of projects being postponed. The scenario of rising inflation and increasing uncertainty may lead to a lower appetite for investment, which is likely to have an adverse effect on demand and therefore on sales.
For the time being, and to the best of our perspective, we do not see this having a material impact on AO in 2025. The implications of the U.S. tariff policy are currently difficult to assess. I do want to stress that the current geopolitical and macroeconomic uncertainty increases uncertainty to current outlooks. We are expanding significantly in Sweden. The purpose of acquiring Svenska VA-Grossisten in Vallentuna in 2024 was twofold. First, we acquired a well-managed site in Vallentuna, and second, the management in Vallentuna wants to be our growth team in establishing more Greenfield sites in the Stockholm area. One year after the acquisition, the Vallentuna site has grown by more than 25%, and we have opened two additional sites in Västerås and Uppsala. The fourth site in Greater Stockholm is planned to open in Örebro in January 2026.
We are very satisfied with the growth journey in the Stockholm area, and we do see further potential lying ahead of us. Now, Per, please take us through the financial performance.
Thank you, Niels. Q2 sales came in at index 115%. Organic growth was 7.3%, and acquisitive growth amounted to 7.7%. We saw the highest revenue ever in Q2 and in the first half of 2025. Organic growth, adjusted for the number of working days, was 9.1% and thus slightly higher than in Q1. Both B2B and B2C delivered the expected sales. Gross profit margin increased by 1.2 percentage points, driven by increased margins in both segments. Cost of doing business ratio increased from 17% to 17.8%. The cost of doing business ratio is higher in acquired companies. EBITDA came in at DKK 93 million, 24% or DKK 18 million higher than Q2 last year. The EBITDA margin was 6.2% against 5.8% in Q2 last year. EBITDA increased 40% and ended at DKK 53 million against DKK 38 million last year. Summing up, earnings were as expected as Niels also said.
Let's turn to the margins. Q2 margins improved from 22.8% to 24%. Both segments delivered higher margins, and the increase was also fueled by the acquisitions made in 2024. B2C share of sales ended at 16.7% in Q2. Since the B2C segment brings a higher margin, the impact was 0.8 percentage point up on the overall margins. Consequently, margins ended at 24% and up 1.2 percentage point compared to Q2 last year. Now let's leave the margins and turn to the segment info. The B2B segment accounted for 83.3% of the Q2 revenue, and the B2C segment accounted for 16.7%. We are quite satisfied with the segment performance. B2B revenue grew 8% despite fewer working days compared to Q2 2024. We were satisfied to see the B2B margins increase of 0.3 percentage point in Q2. B2C revenues increased 71% compared to Q2 last year. Organically, the segment grew 7.5%.
B2C margins increased by 4.4 percentage points and ended north of 31%. The increased scale in the B2C segment resulted in a significantly improved EBITDA margin, now above 9% and getting closer to the B2B segment EBITDA margin at 11%. Finally, indirect non-allocated costs increased DKK 2.9 million compared to last year. Indirect costs amounted to 4.5% of revenues, which is down from 4.9% of revenues last year. Let's turn to the investments. Please be aware that the chart does not include M&A investments. The highlighted band shows the normal level of maintenance investments in AO, estimated to be DKK 60 million -DKK 90 million on a yearly basis. The investments in Q2 2025 amounted to DKK 46 million against DKK 30 million in Q2 last year. The increase of some DKK 15 million is mainly due to the warehouse expansion in Albertslund.
Full-year investments 2025 is expected to be approximately DKK 200 million, roughly half relating to the expansion of new warehouse in Albertslund, which will kick in from now and later this year. Let's look at the cash flow. Cash flow from operations came in DKK 173 million, better than Q2 2024. Some DKK 20 million related to increased earnings, whilst most of the increase related to working capital timings. Dividend paid out in Q2 relates to dividend taxes and amounted to DKK 16 million. Net interest-bearing debt ended at DKK 1.168 billion against DKK 1.3 billion end of Q1. Net interest-bearing debt over EBITDA was 2.9% compared to 3.4% end of Q1 and 2.5% end of Q2 last year. Now let's turn to the guidance of 2025, which is unchanged though with a range narrowed towards the higher end. Originally, we expected sales to increase by 7%- 12%.
Now we expect sales to increase by 9.5% - 12%. The reason for the narrowed range is that the first half sales hasn't fully met our expectations. We expect an EBITDA in the range of DKK 420 million-DKK 450 million. The lower end of the range has increased by DKK 10 million. We expect EBITDA in the range of DKK 245 million-DKK 275 million. Also here, the lower end of the range has increased by DKK 10 million. The most significant risks towards our guidance are that the margins pressure will increase instead of gradually reduce during the remainder of 2025, that basket sizes remain low and continue to drive increased logistics costs, and that the geopolitical and macroeconomic tension result in lower consumer investment appetite and postponed projects. This concludes the presentation, and we are ready to take your questions.
If you do wish to ask a question, you will need to press five star on your telephone. To withdraw your question, press five star again. Our first question comes from the line of Christian Tornøe from SEB. Please go ahead. Your line is now unmuted.
Thank you. I have a couple of questions. Let me start out with AO Workwear, which seems to have been a fantastic acquisition so far. You mentioned that it has doubled earnings, and this seems to be really on a standalone basis with limited synergies so far. Maybe you can elaborate what has actually driven this substantial growth?
Hi Christian. You're right that the workwear is on a good path, and they have done good. It's mostly on a standalone basis, I agree. However, we have started the integration, and it's starting to establish the foundation for the synergies, being that our 28,000 B2B customers are to buy their clothes, hopefully, through the workwear system and company. Why have they increased performance in 2025? They are in a good position to serve also the private consumer in their universe. That was also what we discovered when we were having a dialogue in relation to the acquisition. It's a good company in a very good shape. They have an efficient business model. They have a quite new auto store, automated warehouse, a lot of capacity not yet being utilized. Yes, they are simply in a good shape to serve a growing market within the private consumer's universe.
Maybe equally to sort of get an understanding of whether you find this sustainable, or you can phrase it differently, whether there's any non-recurring nature to this performance?
No, I wouldn't say that. I think the reputation of AO Workwear is that you get a very good deal. In times where the economy is a bit uncertain, I think that many are tempted to visit the websites in the workwear universe. I think that the weather conditions have been quite okay. It has been mixed weather, calling for a broad assortment. I think that the assortment in workwear has been quite good to match the demand from consumers. Hopefully, we will be in a good position going forward, Christian.
Sounds good. You also mentioned that you sort of started the integration and are launching their assortment to your B2B clients in wider scale. Are you, I mean, as of now, is it fully available to your B2B customers? Essentially, when should we expect to see that in numbers, those sales synergies?
The vast majority of our opportunities still lie ahead of us. You should probably assume, or we expect this to increase during the remainder of 2025. The main synergies will kick in from 2026, we believe.
Understood. Quite clear. If I can go to your Swedish business, firstly, congratulations on actually disclosing some details. I am, for one, quite happy with the transparency here. What you disclose is excluding startup and integration cost on the earnings part. Can you maybe just help us understand what magnitude we are talking about when you open a new store in terms of startup and integration?
It's a couple of million Swedish, typically.
Okay. That makes sense. Great. Just my last question. You talk about competition. In terms of your gross margin as well, you also say that you expect the supply-demand situation to improve. When do you expect better pricing and hence better gross margin as a consequence?
It's a good question, Christian, and probably I'm not equipped to answer it. We expect no free lunches in the remainder of 2025. I think we will gradually see more balance perhaps from 2026. We have a couple of interesting megatrends, as you know, in society: the green transition, the renovation or modernization of water infrastructure, the electrification. It's not able for us to say exactly when, but what we do know is that it has quite a big impact, and we see quite big opportunities from those megatrends when kicking in. Probably not in 2025, but we are ready when it kicks in.
Okay. Sounds good. Just to follow up, there is no sort of material gross margin improvement assumed in your financial guidance for 2025 then?
Yes and no. No from when you look at it from a competition point of view, where I think we still expect a fierce competition throughout 2025. We do normally see slightly higher margins in the second half of a year. We have another dynamic. Typically, in the second quarter or second half of a year, the sales are typically higher. The autumn is where we see the highest revenue. We do see higher margins normally because the way we inflow, you could say, the supplier bonuses, we typically have a higher share that we bring to income end of year, which increases the margins, not significantly, but it increases the margins. Typically, we also see a slightly lower cost of doing business. That's due to the holiday allowances.
We typically expense around DKK 15 million during the first half of the year, and then we use the DKK 15 million second half of the year. That means that we bring it to income second half of a year. We have a number of dynamics that normally increase the earnings in the second half of the year. Now, Christian, last year in 2024, we showed the doubled earning in the second half of the year compared to the first half of 2024. You shouldn't expect that to happen because last year we had the three acquisitions. Having said that, you should expect higher earnings in the second half and also slightly higher margins. You would also typically, in the second half of the year, see an overproportional share of B2C due to the Black Week. That would also favor the margins.
Understood. Thank you for clarifying. That was all for me. Thank you.
Thank you, Christian.
As no one else has lined up for questions since the call, I'll now hand it back to the speakers for any written questions.
Yes, thank you. We have a question. Are you still taking market share in the Danish market? Do you see any big opportunities from the Danish defense investments? Keep up the good work. Thank you. As you might know, we don't have precise market share data as such in Denmark. For part of our assortment, sanitary and activities for plumbing and entrepreneurs or constructors, we are looking at the Dansk VVS Forening market data. Based on that, we win market share in the second quarter. When it comes to the other areas of our activities, we typically benchmark us to competitors when data is available, and we have good dialogues with suppliers. They also have a good, you could say, good feeling of the market. Based on that, it is our feeling, and it is our understanding that we take market share in Denmark.
I think there will be opportunities from the Danish defense investments, and we will be ready to serve when we see those opportunities. We have another question. Can you elaborate on the lower EBITDA margin in the B2B segment? What has driven this? The EBITDA margin of B2B, we find it quite healthy, but as we have explained during the past webcast, we have chosen to invest in the future. We have brought on new competencies. As you might know, because we keep saying it, we are not a quarterly-driven company. No matter whether we face headwind or tailwind, we are investing in our shops and our outlets, and we are investing in our employees. It takes us years and years to educate the best team in our line of business, as we believe we have.
They are much too important just to say goodbye to them when we have a quarter of headwind. No matter that we find it's quite tough business out there, we are investing in the future. Actually, I don't have any more questions. Thank you for the questions, and thank you for listening in. We are to see you again in October, the 30th of October, to our Q3 webcast. Thanks for now. Bye.